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Archive for June 29th, 2020

The Proposed New Competition Tool: A Follow-Up

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follow up

I recently published these 10 questions on the proposed new competition tool (“NCT”). That post spurred some debate, and very mixed views, here and elsewhere. The comments we received were thoughtful, and we thought they merited a follow-up.

[Disclaimer: As a practicing lawyer, I work for many companies that could be potentially affected (for better or for worse) by an eventual NCT. These include a considerable number of companies active in the sectors where the CMA has conducted market investigations, including retail banking, energy, airports and cement. I also work for companies active in digital, telecom, sports, financial services, retail, food, payments and many others where network effects are at play. The identity of many of them can be consulted in the curia website here]

Legal basis. This was one of the main points in my post, but it has only triggered reactions in private. In the competition field (and in national competition regimes) we are not used to these debates, but they are the one crucial legal issue when it comes to EU legislative initiatives. There seems to be a consensus that Art. 103 TFEU cannot be a legal basis for conduct falling outside Arts. 101 and 102 TFEU. This is apparently why the Commission contemplates relying also on an internal market legal basis. This is what was done re the Damages Directive, and it made perfect sense there (the idea was to harmonize competition law across the EU to ensure the uniformity and effectiveness of the rules). This same combined legal basis could arguably be sufficient  if the proposal were justified only as an “internal market tool”, but I’m not sure it does the trick for a “competition” tool that goes beyond Arts. 101 and 102 (where is the centre of gravity?). In my view, if we really want to enlarge the toolkit to cover “monopolization”, that would arguably need an amendment to the Treaty. Admittedly, the Commission could follow the indications of Protocol 27 to the Treaty and resort to Art. 352 TFEU, as it did at the time of adoption of the Merger Regulation. 

The object or effect of bypassing Court standards. My previous post expressed a concern that the NCT could have the object or effect of bypassing Court standards. To be sure, I am not saying the Commission is proposing the NCT to avoid established legal standards and its burden of proof (even if this would arguably be in line with the suggestions in the Special Advisers Report). My point is rather that, regardless of intentions, to the extent there might be an overlap between the scope of the NCT and that or Articles 101 and 102, then that will inevitably lead to bypassing those standards. That is my chief concern and, again, it has nothing to do with the Commission’s intentions, which I am sure are primarily concerned with the protection and, on this occasion, creation of competition. As the Commission often emphasizes, in competition law it is not intentions that matter.

Commissioner Vestager assured last week that the NCT “would let us investigate markets, in the same rigorous way that we already look into individual cases – with the same exacting standards of proof, the right for the companies involved to defend themselves, and the need for the decisions that we take to stand up in court”. Those are important and welcome words. I guess the question then is: what is it that would need to be proved?

Need of the tool to prevent market tipping. It has been argued that we need the NCT to anticipate market tipping. We are, however, assured that under an eventual NCT this assessment would of course be thoroughly analyzed and evidence-based. In our view, the case law has developed flexible standards and leaves ample room for prospective examinations (“capable of”, “likely to”, “potential effects”). To be fair, I have not seen examples of agencies having rightly predicted that tipping would occur (and remember prominent economists saying this is impossible), but the Commission successfully predicted where tipping would not occur despite powerful network effects (Microsoft/Skype re video calls on PCs).

Restrictive case law? A reader noted that if would be a good thing for the Commission to bypass “restrictive Court precedent”. Our view is that the EU case law is not in any way restrictive. As we noted in the previous post, for decades commentators have consistently criticized EU case law as too hostile to dominant firms (e.g. here). The Commission’s track record in unilateral conduct cases before the Courts is, if anything, impressive. It might arguably lose future cases, but that’s the name of the game; it would be strange to put on the bandage before the wound.

Think of the German Facebook case last week: when Facebook won, people argued this showed the shortcomings of competition law and the need for regulation. Now that Facebook has lost, the message is that of course the case was sound and solidly builds on existing standards. Different views on this are legitimate, but I’m not sure one can hold both views at the same time (heads, I win; tails, you lose).

Others have it too; the Commission’s special responsibility. You may be familiar with the argument that when one has a “special responsibility”, it does not really matter that others may do the same; perhaps you can’t (I use this with my eldest son too…). The recurrent argument to appease concerns about a potential NCT is that others already have it. And indeed, Romania, Iceland, Greece, South Africa, Mexico and the UK do have tools similar to those being considered by the Commission. There is certainly nothing wrong with the Commission following in those footsteps, but there are institutional differences that arguably matter, even if only as a matter of optics. The Commission’s political nature might be relevant to this discussion.

There is also the risk that this may encourage other countries without the Commission’s checks and balances to incorporate a similar tool. There are countries where powerful stakeholders might be able to secure an antitrust exemption in their favour and to guide intervention against business that they dislike. The risk of this happening could become more serious absent clear red lines and the requirement to find an infringement. By the way, our posts on Siemens/Alstom (here and here) are also relevant to this discussion (this is about principles, not manichean pro vs anti enforcement labels).

External pressures. Every year the Commission gets hundreds of formal and informal complaints alleging infringements. One can safely assume that the Commission will be subject to pressures to act against non-infringements, based on the mere observation that a given market does not perform appropriately. Can you imagine the public and private pressures that would be exerted on the Commission to make use of this tool in particular cases to advance private interests under the guise of progressiveness? By the way, this type of pressure on theories of harm and on remedies has contributed significantly to the length of competition investigations; could the same happen here?

On confidence (discretionalists vs legalists). We do not doubt the possible good intentions underlying the proposal. In our view, however, it seems to be premised on a great degree of confidence that one can, for example, (i) anticipate what markets can be expected to tip; (ii) determine the reasons for that tipping and whether it is, on balance, problematic; (iii) devise some sort of public intervention that will prevent/correct tipping; (iv) do this in a proportionate way that does not compromise welfare enhancing elements or incentives. I get that people may see shortcomings in legal rules that I don’t, but is this confidence in our economic knowledge and ability justified in the light of the available evidence? Legal rules are also safeguards against overconfidence.

Competition law, in sum, has never been a tool for the optimization/fine-tuning of market outcomes in light of more or less idealized benchmarks (one would need a lot of confidence to do that). That is why, as explained in our earlier post, a NCT could have an impact on the nature of the discipline. Whether we may want that or not is a different story, but we understand the reflection is necessary.

Written by Alfonso Lamadrid

29 June 2020 at 11:21 am

Posted in Uncategorized